A recent report by the economic think tank ICRIER said the carbonated soft drinks segment in India is unable to reach its potential in terms of scale expansion due to barriers such as high taxation under the GST regime.
This is despite the government’s initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’, it said.
The cross-country comparative data on sugar-sweetened beverages (SSB) taxes collated by the World Bank shows that India has one of the highest tax rates for carbonated soft drinks (CSDs) at a total tax rate of 40 per cent as of 2023.
It said over 90 per cent of countries that tax SSBs have a lower tax rate than India, as per the report titled ‘Carbonated Beverages Industry in India: Tax Policy to Promote Growth, Innovation and Investment’.
“The CSD market is also changing from its traditional high-sugar carbonated beverages to low-sugar and fruit-based and/or flavoured carbonated drinks to zero-sugar aerated water, catering to changes in consumers’ choice for healthier options and government policies like layered-sugar-based taxes”.
“However, despite government initiatives like ‘Make in India’ and ‘Atmanirbhar Bharat’, the CSD segment is unable to reach its potential in terms of scale expansion due to barriers such as the high tax brackets and compensation cess under the GST regime, implemented since 2017,” it said.
Notably, consumers in India and globally are shifting towards low-sugar and no-added-sugar varieties of beverages amid heightened health awareness.
Producers, across the globe, are reformulating their products to meet consumer demand, and these are supported through government policies and both fiscal and non-fiscal incentives. In India too, producers are re-examining their product portfolios and coming up with products like zero-calorie, low/no sugar content.
“The high tax of 40 per cent, irrespective of sugar content, is making it difficult for innovative firms to come up with low-sugar varieties and scale up existing firms to invest in product reformulation,” the Indian Council for Research on International Economic Relations (ICRIER) report said.
Pointing out that India is one of the largest global producers of fruits such as mango, banana, guava, papaya, sapota, pomegranate, and lime, and sugar, which in some cases are used in the CSD category, the report said,”It has the potential to be used in greater capacity, if the right policies promote their uses in CSDs.” However, India is not among the top global manufacturers of CSDs, and the processing of CSD products in the country is much below its potential.
The varieties are also much fewer than is available in other developing countries such as Thailand or the Philippines, it added.
“While the Indian consumer wants to experiment with different products such as low-sugar CSDs or fruit-based CSDs, and startups are trying to come up with new products, investment, product varieties and innovation is much lower in CSDs in India,” the report said.
Thus, India lags behind several other developing countries in terms of the revenue generated by the CSD market. Consequently, the sector’s potential to attract investment and create jobs, especially in Tier 2 and 3 cities, remains unexplored, it noted.